Inside Costco’s profit surge and the economics of buying differently

In the winter of 2009, a warehouse opened its doors in Docklands, Melbourne, and set about redefining how Australians think about value. Where the major supermarket chains offered familiar aisles of weekly staples, Costco offered something different. It presented mountains of bulk rice, pallets of toilet paper, enormous tubs of olive oil and shelves of Kirkland Signature goods that seemed almost an invitation to rethink the weekly shop. Few expected that, and 17 years on, this giant would not just survive but thrive.At the heart of Costco’s Australian story is a startling statistic. In the year ending August 31 2025, its Australian arm reported a 39.4 per cent year-on-year profit increase, reaching $389.1 million (before corporate tax and dividends) on sales of roughly $10.8 billion. The result was strong enough to send a near $300 million dividend back to its US parent company, even as other retailers laid low amid cost-of-living pressures and aggressive pricing competition.Ahead of Aldi That performance now places Costco ahead of Aldi in Australia, long regarded as the third-largest supermarket by market share, despite Aldi operating hundreds of stores to Costco’s 15 warehouses. The disparity is revealing. It’s a testament not just to scale, but to a model that seems to make absolute sense to Australian shoppers in ways other supermarket behemoths have struggled to codify. Unlike Coles or Woolworths, which vie for everyday trips and loyalty programs, Costco invites a different currency that comprises membership, bulk and anticipation.It can help to envision Costco’s business as less about supermarket shopping and more about retail psychology. Traditional supermarkets chase weekly visits and promotional cycles, whereas Costco encourages one big shop every few weeks, a contrasting rhythm. That cadence changes how people think about value. Buying in bulk becomes a ritual in anticipation, where a membership (currently between $65 and $130 a year) unlocks access to prices and quantities that feel, to many, impossible to replicate elsewhere. “Customers are loading themselves up,” Retail Doctor Group analyst Dean Salakas told Inside Retail. “They’re effectively doing the work of the supply chain themselves.” Salakas said the model is structured to generate profit well before customers reach the shelf. He also noted that historically, Costco’s membership revenue has played an outsized role in underpinning profitability.A successful value proposition For many Australians, the trip to Costco is, naturally, economic but also experiential. Even with membership fees, the sheer scale of goods and the opportunity to stock up all at once reshapes the transaction from shopping into investment. If per-unit cost declines sharply when bought in bulk, the value proposition only strengthens over time. And in an era where affordability dominates as a consumer concern, that is a powerful pull.Crucially, Salakas argues the latest profit surge is not simply about demand, but timing. “What they haven’t had in the last 12 months is store growth,” he said. “When you stop growing, all your efficiency comes out.” After years of network expansion and supply-chain investment, he suggests Costco may now be operating in a more mature phase where efficiencies previously masked by growth costs are surfacing in earnings.This dynamic helps explain why Costco appears structurally insulated from the supermarket price wars consuming the broader sector. Costco isn’t cheaper because it cuts harder but cheaper because it makes money somewhere else.Beyond price wars: Changing how Australians shopThat advantage is being felt far beyond its own aisles. In public submissions to the ACCC’s supermarket inquiry, Woolworths recognised that grocery competition today comes from a broad set of rivals beyond the traditional duopoly, including discount and non-supermarket players such as ALDI, Amazon and Costco. Consumers willing to drive longer distances and buy less frequently but in higher volumes change the cadence of grocery shopping for everyone. It is one thing to compete on price per item; however, it is another to restructure how often and how people shop.Costco’s success also raises larger questions about how the Australian supermarket sector is evolving. Critics of the major chains often point to promotional wars and price gouging as features of a hypercompetitive market. Recent government moves to strengthen pricing transparency and introduce penalties for unfair pricing practices are clearly aimed at reigning in that dynamic. Last month, Treasurer Jim Chalmers flagged a $30 million funding boost for the ACCC, warning supermarkets they could face $10 million penalties for each breach of the rules.Yet Costco, by virtue of its membership model, largely sidesteps the same regulatory scrutiny applied to Coles and Woolworths.Value, loyalty and a system under pressureStill, the model isn’t without its complexities. To thrive, Costco must rely on sustained membership renewals and continued customer engagement, not just once-off visits. Its Canadian and US operations suggest that loyalty in the warehouse format tends to be sticky, with high renewal rates and deep engagement. Australians, too, appear committed; anecdotal evidence from store openings often shows long queues and enthusiastic crowds, willing to travel across cities to access the warehouse experience.It is also recognisable that Costco has managed to anchor value perception in an era when price alone is no longer the only currency consumers consult. Salakas notes that perception plays a decisive role. “Whether it’s actually cheaper or not is almost irrelevant,” he said. “The consumer perceives that buying in bulk means they’re saving, and that perception drives loyalty.” Bulk purchasing, combined with membership exclusivity and a “treasure hunt” atmosphere, reminiscent of Aldi’s rotating middle aisles, turns shopping into both a rational and emotional exercise.In that sense, Costco is operating on a different scorecard altogether. As the supermarket landscape evolves, the question for other players will be whether they can recalibrate their own value propositions by redefining the terms on which consumers buy and think about grocery value. Costco’s results suggest that when you change the logic of shopping itself, you can outpace giants, not by mimicry but by difference.Further reading: Why is Walmart outperforming expectations despite tariff pressures?